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Apple takes on Kanye West in retailing battle on Friday

Tim Bradshaw
Kanye West at an event announcing a partnership with Adidas on June 28, 2016 in Hollywood, California.
Getty Images

This Friday will see two iconic consumer products go head-to-head on the high street for the first time.

The launch of the largest and most expensive iPhone to date is happening on the same day as the biggest "sneaker drop" yet from Kanye West's Yeezy line of Adidas trainers.

They are two of the only products guaranteed to get consumers queueing up for hours in the hope of being among the first to buy the latest gear, at a time when many retailers are struggling to bring customers through their doors.

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Friday's simultaneous debut of the iPhone XS Max and the Yeezy Boost 350 V2 poses a dilemma for Silicon Valley's many "sneakerheads". Tech and fashion, once seen as poles apart, are colliding as each industry tries to learn from the other about how to build hype and connect with consumers.

"If you walk down the street next weekend it will be hard to know if the line is for an iPhone or the next sneaker drop," said Adam Bain, former chief operating officer at Twitter and a devoted sneaker collector for many years. "Part of the allure is that they are hard to find and hard to acquire . . . It's the exact same mentality."

Limited-edition sneaker "drops" have proven particularly compelling to millennials, according to Giovanni Compiani, assistant professor at the Haas School of Business, University of California, Berkeley.

"You are buying into the experience. You want a product that is providing certain utility or functionality but also makes you feel part of something larger than the single product itself," he said. "The strategy is to create a sense of urgency, that this is a limited edition item that is not going to be available in the future."

In addition to mastering the art of the drop, tech and fashion are influencing one another in other ways, from retail and distribution strategies to management styles.

Kasper Rorsted, chief executive of Adidas, has taken to presenting the German company's annual results in hoodies and jeans, walking up and down the stage as if he were at an Apple event.

But unlike Apple, whose chief executive, Tim Cook, introduced the new iPhones last week in a bright white pair of $150 Nike Epic React trainers, Mr. Rorsted leaves Adidas's product launches entirely to the brand's celebrity "influencers".

Meanwhile, Mr. West, who has billed this week's Yeezy release as his brand's "largest drop ever" in a bid to "democratize" access to the $220 shoes, has adopted Silicon Valley lingo to describe his business.

"Yeezy will hit a billion dollars this year," he claimed on Twitter in April. "It is a unicorn on its way to becoming a decacorn," he said, referring to a start-up with a $10bn valuation.

Mr. West is the most successful example of Adidas's decision to look beyond athletes for endorsements, to the music and entertainment industries. Apple, too, has tried to lure fashion influencers, particularly since Angela Ahrendts joined from Burberry in 2013 to run its retail stores.

That association intensified with the debut of the Apple Watch in 2014, which includes a special Hermès edition. Guests at last week's launch event in Cupertino included Virgil Abloh, the designer behind fashion brand Off-White who has become a Nike collaborator and men's artistic director at Louis Vuitton.

"Apple is not a tech company, it's a luxury brand," said Scott Galloway, professor of marketing at the New York University Stern School of Business. "Just as Apple copied Louis Vuitton, you're going to see Nike and Adidas copy Apple."

Though the technologies, materials and unit volumes involved in sneakers and smartphones are very different, Apple and Adidas both employ similar tactics to generate hype for their launches. They trade on scarcity and exclusivity to command premium prices, building buzz to drive people to their stores instead of relying on traditional browsing and window shopping.

While an iPhone's scarcity is usually driven by demand exceeding supply, with more than 10m typically sold in the opening weekend, Adidas has deliberately produced very limited runs, sometimes offering only a few thousand shoes with each release. The strategy has proven lucrative for Adidas, whose shares are among the top performers among German blue-chips in recent years.

That technique was pioneered in the 1980s and '90s by Nike with its Air Jordan trainers and perfected by streetwear brand Supreme, according to Matt Cohen, vice-president of business development and strategy of Goat, an online marketplace for buying and selling sneakers, where a coveted pair can sometimes sell for even more than the $1,100 iPhone XS Max.

"It's a foot traffic play, it's a hype play and shows real demand for products," he said of the limited-release strategy.

Finding a shoe that is actually on the shelves could be a signal that it is less desirable. "If the internet and social media isn't telling you a product is supposed to be hyped, then people don't care about it," said Mr. Cohen.

Supreme, which last year sold a stake to private equity firm Carlyle Group, is planning to open its first store in San Francisco in 2019. The shop will be in the city's Mid-Market district, close to many tech start-ups as well as offices of Twitter and Uber.

Some of Silicon Valley's most successful entrepreneurs have bought into the "streetwear" trend epitomized by Yeezy and Supreme. Tech industry sneaker enthusiasts include Twitter chief Jack Dorsey, Airbnb co-founder Brian Chesky and Salesforce boss Marc Benioff, according to Mr. Bain, who invested in Goat after becoming one of its biggest customers.

"There is not a closet in my house that isn't overflowing with sneakers," Mr. Bain said, though he declined to comment on the exact number "out of sheer embarrassment that I own this many".

In the land of the scruffy tech billionaire in his hoodie, traditional displays of wealth such as fancy cars or jewelery are considered "gauche", said Matthew Panzarino, editor-in-chief of TechCrunch, the Silicon Valley news site, and a shoe collector.

"The sneaker is a way for them to flaunt without being too ostentatious," he said. "It is also a way to say, 'I'm one of the people in Silicon Valley that has taste, that sees beyond whatever coding language is hot right now'."

Many of the people paying top dollar for coveted shoes on Goat and its rivals such as Stadium Goods and StockX do not end up even wearing them, said Mr. Bain.

"With Apple products, you line up for a product you are using 157 times a day," he said. "The irony about the sneaker drops is a big percentage of people lining up aren't actually going to wear the shoe — they will keep it in the closet."

The lines have become a mixed blessing for the likes of Apple, Adidas and Supreme. Once a festival, queues can grow unruly, hijacked by resellers and self-promoters. That has pushed Apple and streetwear brands to take more orders online in the past couple of years — though the speed by which products disappear from their virtual shelves leaves many with little choice but to line up in person if they want to "cop" the latest goods.

Despite the cross-pollination between the two industries, Berkeley's Mr. Compiani warned against tech companies that traded functionality for fashion entirely. Consumers may eventually tire of endless drops and hype-mongering, he said, especially as technical innovations in areas such as smartphones become more incremental. "I do not see this as a sustainable strategy in the longer term."

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Key Points
  • Last Christmas, West surprised Kardashian with shares of Netflix, Amazon, Apple, Adidas and Disney.
  • Netflix and Amazon are Kardashian's best-performing holdings, up 90 percent and 50 percent, respectively.
  • Apple, Adidas and even Disney are also performing respectably.